Permission is granted only to ARMLS® Subscribers for reproduction with attribution to “ARMLS® COPYRIGHT 2017”
COMMENTARY by Tom Ruff of The Information Market 8 ARMLS STAT APRIL 2017
Fix and Flip: A property purchased and sold again within 61 and 365 days, or 366 days in a leap year, of the original purchase date via a nonbrokerage model mously said, “The secret to success is to own nothing, but control everything.” Wholesalers will take this adage to heart. A dozen or so companies dominate our local market. They actively solicit distressed properties, estate sales, absentee and out-of-state owners. The primary players in this market will have an active list of investors to whom they market their properties. These properties will also appear for sale on their individual websites. The median year built for all homes acquired by wholesalers in Maricopa County is 1971 with a median purchase price of $120,000. As for the markup by the wholesaler, it’s what the market will bear and the percentage gains can vary wildly. By our definition, wholesaling accounts for 13.96% of all flips.
The Light Fix For the purposes of our discussion, light fixes are properties that are purchased and sold again between 31 and 60 days. The days between sales are calculated from the publicly recorded deeds and do not necessary imply the true days between acquisition and resale. These flips will involve cosmetic upgrades like new carpet and paint. Our definition of light fix ups account for 5.06% of our flip market. Only 26% of these flips were purchased on the MLS. The median year built for these homes is 1981 with a median purchase price of $140,000. At the conclusion of the flip, these properties will sell on average 22% higher than the original purchase price. The Fix and Flip Fix and flips are fun to study. In fact, that 45% are originally purchased on the MLS and 89% are sold on the MLS gives us ample opportunity to view the before and after pictures. Fix and flips are first and foremost a business modNew Brokerage Model While each of their business models have distinct differences, they both buy directly from the seller and by acquisition of properties through their various marketing and advertising campaigns. Their acquisitions are purchased off of the MLS, but the majority of their sales are listed. They are also active at trustee sales. Over the past year in Maricopa County, the two together have accounted for 15.82% of all flips in Maricopa County. The rate of their acquisitions has been increasing as has their funding. In May of last year, they accounted for 8% of all flips. In March of this year, that percentage rose to nearly 23%. The median sales price of their acquisitions over the past year was $204,946 and the median year built for these acquisitions was 2000. The center point for the number of days between the original purchase and when the property is sold is 104 days. There are a handful of properties that sold within 30 days as well as a handful that took up to nearly a year to sell.
Wholesale Real estate wholesaling is flipping, except the time frame is much shorter and no repairs are made to the home before the wholesaler sells it. A double escrow is a set of real estate transactions involving two contracts of sale for the same property to two different back-to-back buyers, for the same or different price, arranged to close on the same day. Nelson Rockefeller fa- 9 ARMLS STAT APRIL 2017 el. A single flip can show us the lowest price in a neighborhood and on the flip side, the highest price. They also show us what design upgrades are popular and the features that current buyers prefer. Again, fix and flips are a business, they know what sells. Our definition of fix and flips account for 65.16% of all flips in our market. The average flip takes 180 days with an average gross margin of 43%. Even with a high gross average, this is not an arena for amateurs inspired by reality TV. Losses do occur. The median purchase price of the original purchase is $164,900 and the median and average year of construction is 1981. Fix and flips are really about opportunity by purchasing an undervalued asset, improving that asset and then selling that asset at a profit. The Sun City ZIP code of 85351 is surprisingly a perfect example, it’s the ZIP code with the highest number of fix and flips in the Valley over the past year. Another aspect of fix and flips that is fun to watch has to do with gentrification, older neighborhoods getting hip. A close eye on what’s happening in the fix and flip arena will offer insights into the next hot and upcoming hood. The ARMLS Pending Price Index (PPI) Last month STAT projected a median sales price for March of $233,000. The actual median sales price was $234,000, $1,000 higher than the mathematical model projection. Our mathematical projections have been trending slightly lower than the actual results. Looking ahead to May 2017, the PPI projects a median sales price of $239,900. With limited supply and steady demand, particularly at the lower price points, the median sales price will definitely increase in May. 10 ARMLS STAT APRIL 2017 MLS sales volume in March 2017 was 8,666, 4.5% higher than the 8,293 total last year. This accounted for 134 fewer sales than our projected total of 8,800. Sales volume for the first four months of 2017 is 9.4% higher than 2017, with 30,149 sales in 2017 compared to 27,554 for the first 4 months of 2016. It should be noted, there was one more business day last April than this April. If we look at a daily sales average there were 433.3 sales per day in 2017 and only 395.9 sales per day in 2016 or a 9.45% increase, which is directly in line with our year-over-year sales total. We begin May with 7,427 pending contracts, 4,701 UCB listings and 583 CCBS, giving us a total of 12,711 residential listings practically under contract. This compares to 13,115 of the same type of listings at this time last year. Even though we enter May with fewer residential listings practically under contract this year, I’m still projecting the sales volume in May 2017 to exceed the volume of 8,676 of May 2016. STAT is projecting 8,950 sales in May, a number I obviously just pulled out of a hat. There were 20 business days in 2016 and 21 business days this year.
There are many benefits to homeownership. One of the top benefits is being able to protect yourself from rising rents by locking in your housing cost for the life of your mortgage.
Don’t Become Trapped
Jonathan Smoke, Chief Economist at realtor.com, reported on what he calls a “Rental Affordability Crisis.” He warns that,
“Low rental vacancies and a lack of new rental construction are pushing up rents, and we expect that they’ll outpace home price appreciation in the year ahead.”
In the Joint Center for Housing Studies at Harvard University’s 2016 State of the Nation’s Housing Report, they revealed that “The number of cost-burdened households rose to 21.3 million. Even more troubling, the number with severe burdens (paying more than 50% of income for housing) jumpedto a record 11.4 million.” These households struggle to save for a rainy day and pay other bills, such as food and healthcare.
It’s Cheaper to Buy Than Rent
In Smoke’s article, he went on to say,
“Housing is central to the health and well-being of our country and our local communities. In addition, this (rental affordability) crisis threatens the future value of owned housing, as the burdensome level of rents will trap more aspiring owners into a vicious financial cycle in which they cannot save and build a solid credit record to eventually buy a home.”
“While more than 85% of markets have burdensome rents today, it’s perplexing that in more than 75% of the counties across the country, it is actually cheaper to buy than rent a home. So why aren’t those unhappy renters choosing to buy?”
Know Your Options
Perhaps you have already saved enough to buy your first home. HousingWire reported that analysts at Nomura believe:
“It’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment.
It’s that they think they’re not qualified or they think that they don’t have a big enough down payment.” (emphasis added)
Many first-time homebuyers who believe that they need a large down payment may be holding themselves back from their dream home. As we have reported before, in many areas of the country, a first-time home buyer can save for a 3% down payment in less than two years. You may have already saved enough!
Don’t get caught in the trap so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Let’s get together to determine if you can qualify for a mortgage now
- ‘Millennials’ are defined as 18-36 year olds according to the US Census Bureau.
- According to NAR’s latest Profile of Home Buyers & Sellers, the median age of all first-time home buyers is 31 years old.
- More and more ‘Old Millennials’ (25-36 year olds) are realizing that homeownership is within their reach now!
How Do Rising Prices Impact Your Home Equity?
Tuesday August 16th, 2016 First Time Home Buyers, For Buyers, Move-Up Buyers, Pricing
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Yesterday, we shared the results of the latest Home Price Expectation Survey by Pulsenomics. One of the big takeaways from the survey is that over the next five years, home prices will appreciate 3.5% per year on average, and cumulatively will grow by around 18%.
So what does this mean for homeowners and their equity position?
For example, let’s assume a young couple purchased and closed on a $250,000 home in January of this year. If we only look at the projected increase in the price of that home, how much equity would they earn over the next 5 years?
How Do Rising Prices Impact Your Home Equity? | Simplifying The Market
Since the experts predict that home prices will increase by 4.5% this year alone, the young homeowners will have gained over $11,000 in equity in just one year.
Over a five-year period, their equity will increase by over $46,000! This figure does not even take into account their monthly principal mortgage payments. In many cases, home equity is one of the largest portions of a family’s overall net worth.
ARMLS 2016 Permission is granted only to ARMLS® Subscribers for reproduction
with attribution to “ARMLS® COPYRIGHT 2016” COMMENTARY by Tom Ruff of The Information Market
Exactly ten years ago, the median resale home sale price rose to peak
prices at $253,400 in Maricopa County when looking at tax records.
In April of 2009, the median resale home price fell to $119,000 but
rose steadily through 2010 propelled by tax incentives. When those
ended, the median fell back to $112,000 in August of 2011 hitting its
natural bottom, around 56% below its peak. Today, we refer to 2011
as the bottom of our market. A common topic among housing reports
is comparing home prices today with the peak prices of 2006 using
this barometer to gauge how far along various housing markets are in
their recovery. This month in STAT we will use this common metric as
it applies in Maricopa County using tax data.
The median sales price for all resale homes sold in Maricopa County
for May 2016 was $225,000, or 89% of peak prices. There are pockets
in Maricopa County where the current resale median is very close to
the peak median, places where the peak has been surpassed and
parts of the county where the median price is only 50% to 65% of the
peak value. Arcadia and north central Phoenix are examples of areas
where current median prices compare favorably to peak prices. ZIP
codes which report favorably are: 85018, 85014, 85013, 85016 and
Using ZIP code 85014 as an example of an area fully recovered, the
peak annual median resale price was $268,000 in 2006. The median
resale price fell 58% before bottoming at $112,500. Prices since the
bottom have risen 240%. The median resale price for the first 5 months
of 2016 in 85014 is $270,000 or 101% of peak pricing. There is currently
only 2.4 months supply of inventory listed. It’s a hot ZIP with sought
after neighborhoods — a central location in the Madison Elementary
school district with short walking distances to some of the newest and
hottest restaurants in Phoenix.
Areas where the current median sales price is still well below peak prices
can best be described as west central Phoenix and the far northwest
Valley. The median resale prices in these areas fell more dramatically
from peak to bottom, ranging from 60% to 85%. Examples of these ZIP
codes are: 85009, 85355, 85396, 85342, and 85031.
Using ZIP code 85031 as an example of an area with a way to go, the
peak annual median resale price was $190,950. The median resale price
fell 80.6% before bottoming at $37,000. Prices since the bottom have
risen 338%. The median resale price for the first 5 months of 2016 in
85031 was $125,000 or 65% of peak pricing. There is currently only 2.0
months supply of inventory listed. This was one of the hardest hit areas
as evidenced by the 80.6% decline in prices as well as an area attractive
to investors as evidenced by the 338% rise from the bottom.
8 ARMLS STAT MAY 2016
As our resale median home values continue to rise we need to mention
one important difference between our peak prices in 2006 and
our current prices, mainly the cost of money. In June of 2006, the 30-
year fixed rate mortgage averaged 6.68% as reported by Freddie Mac,
where for the week ending June 9, 2016 the average rate was 3.66%.
Interest rates today are 46% lower than they were in June 2006.
When we apply these rates to a $200,000 mortgage, the interest paid
in June of 2006 would have been $1,113 per month compared to $610
We hope that this data has helped kill off some broad generalizations
about how the market has changed in the last ten years with our reporting.
Even if all the experts can’t agree about what has happened
in the last ten years, we can at least agree that we are all ten years
The ARMLS Pending Price Index (PPI)
Our last PPI projected a May 2016 median sales price of $223,839
with the actual median coming in at $225,700 – off by 1.3%. MLS sales
volume in May 2016 was 8,676 landing at 176 more sales than our
projected volume of 8,500. Looking ahead to June, we predict a median
sales price of $227,000. We begin June with 7,551 pending and
4,329 UCB listings giving us a total of 11,880 residential listings practically
under contract. This compares to 12,076 of the same type of
listings at this time last year. We expect sales volume in June to be
very similar to last year with an accompanying increase in the median
sales price. Our projected sales volume for May 2016 is 8,400.
In his report, “The New American Home”, Stephen Kim of Barclays
Capital finds that trends from the US indicate the Baby Boomers are
looking to downsize, while Millennials are choosing style over square
footage. The net-net? The new American home is shrinking in size for
the first time in 40 years. He examines how the US housing market
has picked itself up after the global financial crisis of 2008 and is now
changing in a very profound way… the nation’s two largest demographic
groups now desire smaller, but well-appointed houses,
termed “jewel boxes”.